Kelly v. TD Bank U.S.

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CEDAR KELLY, Plaintiff, v. TD BANK USA, N.A. et al., Defendants.

No. 3:21-cv-00242-SB

United States District Court, D. Oregon

September 6, 2022

FINDINGS AND RECOMMENDATION

HON STACIE F. BECKERMAN, UNITED STATES MAGISTRATE JUDGE.

This matter comes before the Court on defendant TD Bank USA N.A.'s (“TD Bank”) motion for attorney's fees, pursuant to Federal Rule of Civil Procedure (“Rule”) 54(d)(2), the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§ 1681n(c) and 1681o(b), and 28 U.S.C. § 1927. For the reasons explained below, the Court recommends that the district judge deny TD Bank's motion.

BACKGROUND

Plaintiff Cedar Kelly (“Kelly”) filed this action against TD Bank and others (together, “Defendants”) on February 13, 2021, alleging violations of the FCRA.^[1] (Compl. at 9-15, ECF No. 1.) Although Kelly alleged four FCRA claims, Kelly acknowledged that he was only alleging one FCRA claim against TD Bank. (Findings & Recommendation (“F&R”) at 1 n.1, ECF No. 34.)

In Kelly's sole claim against TD Bank, he alleged that TD Bank violated 15 U.S.C. § 1681s-2(b) by inaccurately reporting that Kelly's account had been charged off more than once, even though a single debt can only be charged off one time.^[2] (F&R at 1 n.1 & 2) (simplified). In support, Kelly alleged that (1) on or about December 12 2020, he sent dispute letters to two credit reporting agencies, both of which created and electronically forwarded automated credit dispute verification forms (“ACDVs”) to TD Bank, and (2) despite receiving the ACDVs, TD Bank failed to conduct a reasonable investigation or “remove the multiple charge offs.”^[3] (Compl. at 6-8.)

On July 12, 2021, TD Bank moved to dismiss Kelly's claim on the ground that he failed to state a claim upon which relief can be granted. (Def. TD Bank's Mot. Dismissal (“Def.'s First MTD”) at 2, ECF No. 27.) TD Bank's motion relied in large part on the Ninth Circuit's recent decision in Steinmetz v. American Honda Financial Corp., 835 Fed.Appx. 199 (9th Cir. 2020). (Def.'s First MTD at 10, 18.)

In Steinmetz, the plaintiff based his FCRA claim on a creditor's reporting of “multiple charge-offs,” and it was “undisputed that an account can be charged off only once.” 835 Fed.Appx. at 201. In affirming the district court's dismissal of the plaintiff's FCRA claim, the Ninth Circuit held that “[t]he report of multiple charge-offs does not support a plausible claim under [FCRA], because [the plaintiff] failed to plead that anyone would believe that the account had been charged off more than once,” noting that “the standard for actionable [FCRA] conduct is that the imprecision alleged could negatively affect credit decisions.” Id. (citing Shaw v.Experian Info. Sols., Inc., 891 F.3d 749, 757 (9th Cir. 2018)).

In an F&R dated November 2, 2021, the Court concluded that Kelly's theory of liability under the FCRA was the same theory that the Ninth Circuit rejected in Steinmetz and that Kelly had failed meaningfully to distinguish Steinmetz. (F&R at 3-6.) The Court also noted that it was undisputed that a creditor may charge off an account only once and thus there is only one charge-off event, regardless of whether the defendant continues to report that the account was charged off. (Id. at 6.) As a result, and in accordance with Steinmetz, the Court recommended that the district judge grant TD Bank's motion to dismiss Kelly's FCRA claim. (Id. at 1-2, 5-6.)

On November 16, 2021, Kelly timely filed objections to the Court's F&R. (ECF No. 36.) Two weeks later, on November 30, 2021, TD Bank timely filed a response to Kelly's objections. (ECF No. 37.)

On January 31, 2022, the district judge issued an Order adopting the Court's F&R, as supplemented. (Order at 4, ECF No. 39.) The district judge agreed that Kelly asserted the same theory of liability as the theory the Ninth Circuit rejected in Steinmetz. (Id. at 3.) In support, the district judge noted that although Kelly referenced a theory and “distinguishing argument” in his objections about an automated underwriting system's inability to “distinguish[] between multiple charge-off notices on a single account and multiple charged-off accounts,” like the plaintiff in Steinmetz, Kelly “‘failed to plead that anyone would believe that [his] account had been charged off more than once,' . . . and whether ‘anyone' might be an automated underwriting system.” (Id., quoting Steinmetz, 835 Fed.Appx. at 201; see also F&R at 6 n.1, addressing Kelly's conclusory allegations that TD Bank's reporting of the charge-off impacted his credit score and a lender's general understanding and evaluation of tradelines and credit score algorithms). The district judge added that although the F&R did not include a recommendation on leave to amend, the district judge did “not find that amendment would necessarily be futile, and the remaining factors in evaluating whether to grant leave to amend [did] not apply.” (Order at 4.) The district judge therefore granted Kelly leave to amend.^[4] (Id.)

Kelly timely filed an amended complaint against the only remaining named defendant, TD Bank, which Kelly incorrectly continued to refer to as “TD Bank, National Association.” (First Am. Compl. (“FAC”) at 1, 9-13, ECF No. 41.) The amended complaint also named several Doe defendants. (Id. at 1.)

Like his original complaint, Kelly alleged in his amended complaint that his FCRA claim stemmed from the credit reports he ordered on September 14, 2020, the inaccurate, misleading, or incomplete “tradelines in his September 14[, 2020] [c]redit [r]eports,” and the dispute letters he sent to two credit reporting agencies on December 12, 2020. (Compare FAC ¶¶ 36-44, 47, with Compl. ¶¶ 50-56, 59.) Unlike the original complaint, however, Kelly alleged in the amended complaint that his dispute letters, which the credit reporting agencies summarized in the ACDVs, “specifically put TD Bank on notice that [Kelly's] account inaccurately reported the date in which the charge off occurred.” (FAC ¶¶ 36-44, 47, 70-74; cf. Compl. ¶¶ 50-52, 56, 59, alleging that the dispute letters/ACDVs “specifically put TD Bank on notice that [Kelly's] accounts are inaccurately reporting with multiple charge off notations in the payment history and should be updated”).

In support of this new theory, Kelly alleged that (1) the tradelines on his credit reports dated September 14, 2020 “incorrectly reflect that [his Target credit] account was charged off in December 2020 . . . and in January 2021 . . . when in fact it was charged off in August 2018,” and (2) despite being put on notice by Kelly's December 12, 2020 dispute letters/ACDVs, TD Bank continued to report to two credit reporting agencies that his account was charged off in December 2020 and January 2021, not August 2018, which is “more derogatory” and damaging to his credit score and overall “credit worthiness.” (FAC ¶¶ 15, 36-47, 49-50, 53, 70-74.) Kelly also alleged that after receiving notice of his dispute/ACDVs, “TD Bank either failed to conduct any investigation or failed to conduct a reasonable investigation of the information as required by the FCRA,” and thus violated § 1681s-2(b).^[5] (Id. ¶¶ 54, 72; cf. Compl. ¶¶ 65, 71, 97, 103, reflecting that Kelly previously alleged that TD Bank “failed to conduct a reasonable investigation” and that “TD Bank's lack of investigation, as required by the FCRA, [was] unreasonable”).

After the Court granted TD Bank an extension of time to respond to Kelly's amended complaint, TD Bank filed a Rule 12(b)(6) motion to dismiss on March 24, 2022, certifying that “[t]he [p]arties made a good-faith effort through a telephone conference to resolve the dispute and ha[d] been unable to do so.” (Def. TD Bank's Mot. Dismiss Am. Compl. (“Def.'s Second MTD”) at 2, ECF No. 44.) In its second motion to dismiss, TD Bank emphasized that Kelly continued to name the wrong TD affiliate in his amended complaint and failed to comply with the Court's Order on the parties' stipulated motion to amend the caption, and that this “recurring” error or “misnomer” was “itself . . . sufficient grounds for dismissal[.]” (Id. at 4, 78.)

TD Bank further emphasized that Kelly based his amended FCRA claim on the tradelines in his September 2020 credit reports and the dispute letters he sent to two credit reporting agencies in December 2020, yet he alleges that TD Bank violated the FCRA by failing to conduct any, or at least a reasonable, investigation into the inaccurate charge-off dates of December 2020 and January 2021. (Id. at 15.) According to TD Bank, Kelly's allegations were “impossible,” not “merely implausible,” because “there is no way” charge-off dates of December 2020 and January 2021 could have appeared on September 2020 credit reports. (Id.) As to damages, TD Bank noted Kelly's allegation that “‘Citibank saw the inaccurate information in November 2020,' [i.e.,] a month before” December 2020. (Id., quoting FAC ¶ 59.)

TD Bank also attached as Exhibit A to its second motion to dismiss a copy of Kelly's dispute letter, and argued that the Court could consider its contents under the incorporation-by-reference doctrine.^[6] (Id. at 5, 13.) Kelly's dispute letter refers to his TD Bank/Target account and states that when he reviewed his credit report he noticed that he was “being listed with multiple charge offs,” “[r]epeated and continuous charge offs or rolling charge offs[] is a one-time event and cannot be reported every single month,” and he wanted the charge-offs “for the months of September 2018-August 2020” removed from his “payment history.” (Id. Ex. A at 1, ECF No. 44-1; see also id., reflecting that Kelly's signature was date- and time-stamped “Nov 25, 2020 06:59 PST”).

Relatedly TD Bank's second motion to dismiss stated that Kelly may be...